Standard Chartered Hong Kong

SME Leading Business Index

Quarter 2, 2014

Standard Chartered SME Index Report 2014 Q2

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About the index Sponsored by Standard Chartered Bank (Hong Kong) Limited, the

“Standard Chartered Hong Kong SME Leading Business Index” (Standard

Chartered SME Index) is a forward-looking survey on local SMEs’ outlook

on the overall business environment for the next quarter. HKPC’s

professional team interviews more than 800 local SMEs from the

manufacturing, import/export trade and wholesale, retail,

accommodation and catering services, information and communications,

finance and insurance industry, professional services, and real estate

industries. It covers SMEs’ outlook on their ‘sales amount’, ‘profit

margin’, ‘investments’, ‘staff number’, and ‘global economic growth’ for

the next quarter.

Methodology Sample Distribution

Data are collected from over 800 SMEs using publicly available SME

directories and HKSAR Census database. The sample is stratified by the

Hong Kong Standard Industrial Classification (HSIC) version 2.0, and

based on the number of SME establishments in Hong Kong. The

stratified sample covers nine categories namely: 1) Manufacturing, 2)

Import/Export Trade and Wholesale, 3) Retail, 4) Accommodation and

Catering Services, 5) Information and Communications, 6) Finance &

Insurance, 7) Professional and Business Services (include Legal,

Accounting, Consultancy, Advertising, Interior Design), 8) Real Estate

(include Property Agent, Property Management and Maintenance), and

9) Miscellaneous category (include Construction, Transportation, Courier

Services, Human Health Activities, Entertainment, and Domestic

Personnel such as maids, cooks, gardeners, caretakers; exclude

non-commercial activity such as primary school).

Index Calculation Standard Chartered SME Index is a composite index based on the

diffusion indices of the five surveyed areas with the following weights:

Diffusion indices Weights

Staff Number 25%

Investments 25%

Sales Amount 20%

Profit Margin 20%

Global Economic Growth 10%

Respondents indicated the change of business sentiments in three ways:

Increase, same or decline. Each diffusion index is calculated using the

following formula:

Increase% x 100 + No Change% x 50 + Decline% x 0

Diffusion indices, which have been broadly used as leading indicators,

are convenient summary measures indicating the prevailing direction of

change in business sentiments. An index above the 50 no-change mark

generally indicates optimistic business sentiment, while that below 50

indicates pessimistic business sentiment. A reading at 50 indicates

neutral business sentiment.

Standard Chartered SME Index Report 2014 Q2

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Summary

The eighth survey of the Standard Chartered Hong Kong SME Leading

Business Index was conducted in March 2014. Top management of 820

SMEs were surveyed to gauge their views on the outlook of the overall

business environment and regional economic changes in the 2nd quarter

of 2014.

Key findings The Overall Index of the Standard Chartered SME Index has dropped by

2.6 points to 50.8 after it reached its record high in the last quarter. The

Index still stays above the 50 no-change mark, reflecting a cautiously

optimistic business outlook. Key findings of the survey are as follows:

All component sub-indices drop, especially ‘Employee Number’,

‘Sales Amount’ and ‘Profit Margin’;

Import, Export & Wholesale industry Sub-Index rises marginally

by 0.6 points to 51.5. The industry becomes more optimistic

towards “Global Economic Growth” (jumps 6.1 points to 46.5) as

the EU and US economies gradually improve;

Manufacturing industry Sub-Index drops 6.6 points to 51.8 with

worsening outlook on “Investment”, “Profit Margin” and “Global

Economic Growth”, yet the readings show improvement

compared with the same period last year;

Pressure from employee salary expense, rent and financing cost

are higher than Q2 of last year;

Over 85% of the respondents from Retail, and Accommodation &

Food Service industries said that they have to offer much higher

than the statutory minimum wage in order to fill up vacancies.

Standard Chartered SME Index Report 2014 Q2

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Standard Chartered

SME Index 2014 Q2

50.8

Registered at 50.8, the second consecutive quarter the SME Index stays above the 50 no-change mark, SMEs are reflecting a cautiously optimistic

business outlook.

The five component sub-indices recorded a drop in this quarter. The Sub-Indices for “Staff Number” (52.4), “Sales Amount” (52.0) and “Profit Margin”

(44.2) have dropped 2.2, 4.0 and 5.7 points respectively. The Sub-Indices for “Investments” and “Global Economic Growth” are similar to previous

readings. Compare to 2013 Q2, improvements are noted in all component sub-indices, which shows an improving business confidence in HK SMEs.

A huge drop in ‘Profit Margin’ is noted. Apart from ‘Sales Amount’, impact from costs should not be overlooked as they are another main factor

affecting SMEs’ profit. Data shows that SME’s pressure on costs reaches its 1.5 year high in this quarter. Maintain a pessimistic outlook on both ‘Direct

materials’ and ‘Rent’, SMEs stress from ‘Employee Salary’ keeps rising in the past few quarters. And in this quarter, concern on financing cost arise as it

is the first time more than 25% of respondent expected an increase in financing cost. Situations may become even worse when interest rate hike cycle

begins.

Standard Chartered SME Index Report 2014 Q2

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Industry Sub-Indices

Manufacturing industry Industry Index drops by 6.6 points to 51.8 due to manufacturers’

reduced confidence in ‘Investment’, ‘Profit Margin’ and ‘Global Economy

Growth’. However, the pressures from Employee Salary and Rent are

slightly released.

Component View Compare to

last quarter

Compare to

last year

Industry Index Positive Worse Better

Staff Number Positive Worse Better

Investment Positive Worse Better

Sales Amount Positive Worse Better

Profit Margin Negative Worse Better

Global Economy Growth Negative Worse Better

Retail industry It is not surprising that Retail industry lower the expected sales amount

and profit after peak season, but the improvement in Global Economy

Growth helps the index to stay above 50. Pressures from costs are

similar to last quarter.

Component View Compare to

last quarter

Compare to

last year

Industry Index Positive Worse Worse

Staff Number Positive Worse Better

Investment Positive Better Better

Sales Amount Worse Worse Worse

Profit Margin Negative Worse Worse

Global Economy Growth Negative Better Better

Import/Export Trade and Wholesale industry The Import/Export Trade and Wholesale industry index is in an upward

trend. This quarter goes up 0.6 points to 51.5. The industry becomes

more optimistic towards “Global Economic Growth” as the EU and US

economies gradually improve. Yet pressure from ‘Rent’ and ‘Financing

cost’ reached their new high.

Component View Compare to

last quarter

Compare to

last year

Industry Index Positive Better Better

Staff Number Positive Better Better

Investment Positive Worse Better

Sales Amount Positive Better Better

Profit Margin Negative Worse Better

Global Economy Growth Negative Better Better

Standard Chartered SME Index Report 2014 Q2

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Featured topic

(b) Employee Salary of Retail and

Accommodation & Catering Services

industry The survey also collected data on salary expenses in the Retail, and

Accommodation & Food Service industries. The “Staff Number”

Sub-index in the Overall index has been staying above 50 since the

launch of the Standard Chartered SME Index in 2012, indicating the

sustained demands for labour. With the rapid development in both

industries in recent years, over 85% of the respondents said that they

have to offer much higher than the statutory minimum wage in order to

fill up vacancies.

(a) Individual visit scheme This year marks the tenth year of the 'Individual Visit Scheme' since its

launch in 2003. The survey gauged SMEs' views on the scheme from

different angles.

The results indicated that SMEs support the 'Individual Visit Scheme'.

About 65% surveyed SMEs in Retail industry and 81% in Accommodation

and Food Service industry believe that the scheme helps the

development of their industries. However, different SMEs speak in one

voice when talking about benefits to their own businesses. Fewer

respondents indicate that they have enjoyed direct benefits from the

scheme.

Standard Chartered SME Index Report 2014 Q2

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Appendix Standard Chartered SME Index by Industry in 8 quarters

Change of major cost components

Distribution of operating costs

Standard Chartered SME Index Report 2014 Q2

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Report release The Standard Chartered SME Index is released in January, April, July and

October every year. Full reports can be downloaded at www.smeone.org,

and the next report will be published in early July 2014.

For more details about the Index, please contact Dr. Gary Cheng at tel.

(852) 2788 6178 or email: garyc@hkpc.org. For other media enquiries,

please contact Chloe Chau at tel. (852) 2788 6158 or email:

chloechau@hkpc.org.

Disclaimer:

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